The government has agreed to prohibit new SMSF residential borrowing after striking a deal with the Greens to pass its tax overhaul.
The Albanese government has clinched a deal with the Greens to ban new limited recourse borrowing arrangements for residential property inside self‑managed super funds, clearing the way for its wider investor tax overhaul to pass the Senate.
The Greens said they had convinced the government to close off a route they said could have allowed high‑net‑worth investors to sidestep the broader changes to property tax breaks.
“The Greens secured an amendment to prevent wealthy property investors from exploiting a loophole to use Self-Managed Super Funds to buy up tax-advantaged investment properties, and removed ministerial discretions that would have allowed a minister to wind back these reforms,” the party said in a statement.
Under the agreement, new limited recourse borrowing arrangements (LRBAs) by super funds for residential property will be banned 45 days after royal assent.
The Greens said that the prohibition would only apply moving forward and added that it would not unwind deals already in place.
Super funds, including SMSFs, were originally exempt from the budget’s capital gains tax (CGT) changes and continue to receive a concessional tax on gains, including an effective 10 per cent rate on realised gains and a zero rate for retirees over 60 when the fund is in pension phase.
Long‑flagged SMSF concerns addressed, says government
In a joint statement, Prime Minister Anthony Albanese and Treasurer Jim Chalmers threw their weight behind the compromise, saying that the borrowings in question were a relatively small part of the housing finance market.
“Less than 1 per cent of residential property borrowing was done through SMSFs,” they said.
Albanese framed the agreement as a landmark step in reshaping the tax system around housing and investment.
“Today the Greens have confirmed they will support passage of the first tranche of tax reform legislation. It is now a question for the rest of the Parliament whether they will get on board with tax cuts for workers and a fairer tax system for first home buyers,” Albanese said.
The government also formally confirmed that the SMSF borrowing clampdown would be implemented via the Greens‑backed amendment.
“In addition, the Government has agreed to support an amendment that will be moved by the Greens to ban future limited recourse borrowing arrangements (LRBAs) for residential property by superannuation funds,” the joint statement said.
Albanese said that the changes “would not alter the tax arrangements for superannuation, would not impact existing SMSF borrowing arrangements and would provide time to finalise arrangements that are in train”.
The focus on LRBAs reflects longstanding regulatory unease about borrowing through super funds.
Under the super rules, borrowing is largely prohibited, with the exception of these limited recourse structures used almost exclusively by SMSFs, with the government underscoring this point in its explanation of the reform.
“Superannuation funds are generally prohibited from borrowing money to invest, with the exception of LRBAs that are used by SMSFs,” the statement said.
The government also linked the new ban to the 2014 Murray Financial System Inquiry, which flagged the potential risks of leveraged property exposure inside retirement savings vehicles.
“Multiple inquiries have raised concerns that these arrangements raise risks for superannuation investors, including the 2014 Murray Financial System Inquiry conducted for the Coalition, and limiting new arrangements going forward will help protect people’s savings,” the government said.
Chalmers said that SMSF borrowing for property had always sat awkwardly alongside broader rules that generally prevented super funds from leveraging up and told reporters that the changes were designed to bring that into line.
“Many of you would know that super funds are generally prohibited from borrowing to make investments, but this has been an exception in the system, and so the changes that we have agreed today will strengthen the rules that limit borrowing by superannuation funds,” he told reporters.
“We will leave the existing arrangements in place for those existing investments, and also have a 45-day transition period for any investments which are currently midstream.”
Chalmers said that warnings about leverage inside SMSFs came under the previous government.
“In 2019 and 2022, the Council of Financial Regulators also highlighted the risks in these arrangements, and we will be dealing with that with this amendment in the Senate,” Chalmers said.
Chalmers said the change would improve the budget bottom line by $50 million.
First tranche of CGT and negative gearing reforms locked in
The measures being advanced are the first instalment of Labor’s wider investor tax reset, first laid out in the 2026–27 May budget.
In the budget, the government abolished the Howard‑era 50 per cent CGT discount for investments and committed to a new system that taxes only the “real” gain on an asset, after adjusting for inflation over the holding period.
The government also tightened negative gearing rules for future investment properties while grandfathering existing arrangements.
The government did not concede to the Greens’ push to scrap the grandfathering clause.
With the backing of the Greens secured, the bill is expected to pass the Senate before the end of next week.
Last week, the government increased CGT exemptions for businesses with annual turnover to $10 million, up from $2 million, and proposed an innovative business tax concession for start‑ups.
This first tranche passed the House of Representatives on 5 June, with a second, more technical bill due later in the year, which is set to spell out detailed carve‑outs and updated rules for discretionary trusts.
[Related: Albanese locks in major CGT carve-outs for SMEs]
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